Tesla’s surging stock is crushing short sellers

You may have heard that Tesla short sellers are taking a bath as the company’s stock climbs.

The company’s shares were up 6.5%, to $346.99, in premarket trading as of 9:51 a.m. ET on Thursday. That increase translates to a mark-to-market loss of roughly $600 million following Wednesday’s close, according to data compiled by the financial analytics firm S3 Partners.

I know, I know, this seems to have become a weekly occurrence. Tesla’s stock price continues to reach new heights while bearish speculators refuse to throw in the towel. And as this song and dance plays out time and time again, the resilience of the battered short sellers stands out the most. After all, Tesla is the most shorted US company.

It’s possible the stubborn short sellers feel they have no choice but to stay in their positions and try to recoup the $3.64 billion they lost in 2016 through the first half of 2017, a period that saw Tesla’s stock rise 51%. And that has worked out for them since the start of July, as they’ve made back more than $1.1 billion of that amid a 9.9% slide in Tesla shares, S3’s data shows.

Another explanation is that Tesla and other red-hot mega-cap tech stocks are being used as proxies for hedging the broader stock market, according to Ihor Dusaniwsky, the head of research at S3. The idea is that huge, influential stocks like Tesla, Apple, Alphabet, and Amazon have a major role in dictating the direction of the broader market.

As all this has gone on, CEO and founder Elon Musk has stayed coy about those shorting Tesla. He’s said in recent months that Tesla’s stock price is too high based on the company’s past and current performance, but that it’s low if you believe in the company’s future. Musk has also had some fun with it, tweeting on June 8 that short sellers “want us to die so bad they can taste it.”

Ultimately, while Tesla has outperformed over the longer term, it’s also easily whipsawed – billions of dollars of value could be created and wiped out at a moment’s notice. So regardless of the rationale for the heavy shorting activity, and looking beyond Musk’s public comments, one thing is certain: Betting against Tesla is not for the faint of heart.

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Tesla’s stock has been on a tear, and short sellers have gotten whacked as a result.